WARNACO STOCK PLUNGES TO 84 CENTS, AS BANKS EXPLORE ASSETS

Byline: Vicki M. Young

NEW YORK — Shares of beleaguered The Warnaco Group Inc. have hit new lows for both the 52-week period and in intraday trading.
The stock closed on Thursday at 84 cents on the New York Stock Exchange, down 14.29 percent from its close the day before, at 98 cents. Warnaco shares on Thursday hovered between 96 cents and 98 cents most of the day, before plunging to its closing price in mid-afternoon trading. Shares of the stock had traded as high as $1.06 during the session, but also dropped to a new intraday low of 80 cents. The 52-week high was $11.19.
If the company’s stock continues trading at $1 or lower for 30 days or dips below a market capitalization of $50 million for 30 days, it is in danger of being delisted by the New York Stock Exchange. Warnaco’s current market capitalization is $44.4 million, based on Thursday’s stock close.
Whether Warnaco would actually be delisted remains to be seen. One retail analyst noted that the company’s chairman, Linda J. Wachner, could purchase more shares, which would give the stock price a bit of a boost, or the company could do a reverse stock split.
The stock price is not the only bad news for Warnaco. When it issued fourth-quarter and yearend results on March 29, the firm said that it has “received a waiver of certain financial covenants” from its lenders. Those are the lenders that provided the company with its new refinancing agreement last year to amend and extend the terms on a $2.56 billion line of credit. According to a Securities and Exchange Commission filing, the waivers end on Monday, unless Warnaco is able to get either another extension or permanent amendments to the covenants to avoid a default after Monday’s expiration.
Sources said that Warnaco’s bankers have begun the arduous task of analyzing the company’s assets, looking at their value to consider what is saleable. Wachner said last month that Warnaco has hired UBS Warburg as its financial adviser. One executive at a factoring firm close to Warnaco said: “Absolutely, the banks are looking at assets. A sale of assets is preferable to a bankruptcy.”
A Warnaco spokesman declined comment Thursday.
Sources also have told WWD that Wachner “has been quietly shopping for a buyer” for its Calvin Klein jeanswear, for which it holds the license, and Calvin Klein underwear operations, which Warnaco owns. As reported, the Calvin Klein jeans and underwear businesses under Warnaco’s umbrella represent about $1 billion in sales and account for $60 million in licensing income to Calvin Klein Inc.
There is no doubt that Warnaco needs to do something to stem the flow of red ink. In the latest earnings release, the loss for the quarter ended Dec. 31 came to $194.8 million, or $3.68 a share, versus a $569,000 profit, or 1 cent, in the same 1999 period. For all of 2000, the loss was $338.3 million, or $6.41 a share, compared with income of $97.8 million or $1.72, in 1999. Wachner said in a conference call to Wall Street analysts that the company expects to “return to profitability in 2002,” but doubts it will see profits this year.
Allan Ellinger of Marketing Management Group, a consulting firm, noted that, generally, companies in danger of not meeting bank loan requirements often have financial executives reviewing the company’s assets to determine if there’s “sufficient value so that it is in the banks’ best interest to keep funding the firm.” The three main options, he said, are to restructure the business to a level where operating economics are reinvented and overhead is downsized, a selloff of assets by division or a liquidation of the company’s assets.
Warnaco has faced some major challenges in the past year, including the now-settled lawsuit with Calvin Klein over trademark infringement and a number of pending shareholder lawsuits that are seeking class-action status.

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